Supervalu's Dividend Suspension, Sales Plan Sparks 40% Dive

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Published July 12, 2012

| FOXBusiness

Shares of Supervalu (SVU) cratered by more than 40% Thursday, a day after the No. 3 U.S. supermarket chain suspended its dividend, withdrew financial guidance and revealed plans to explore a potential sale.

The devastating disclosures, on top of a steeper-than-expected 45% plunge in fiscal first-quarter earnings, prompted Standard & Poor’s to place Supervalu on credit watch negative and a slew of analysts to cut their price targets.

“Supervalu could become the next casualty in the troubled supermarket space, as its fundamentals have finally begun to show real signs of distress after years of steady underperformance,” Credit Suisse (CS) analyst Edward Kelly wrote in a research note.

In an effort to save cash and improve its balance sheet, Supervalu said it is suspending its quarterly dividend and trimming 2013 capital expenditures to $450 million to $500 million from $675 million.

Supervalu also said its board, with help from financial advisors Goldman Sachs (GS) and Greenhill & Co., have started a review of strategic alternatives. This is typically management code for putting the company up for sale.

“These are bold but necessary moves, which will position Supervalu for success in this increasingly competitive environment,” Supervalu CEO Craig Herkert said in a statement Wednesday evening.

In another move sure to scare shareholders, Supervalu said it is suspending its same-store sales and EPS guidance and withdrawing any prior targets for fiscal 2013.

S&P placed Supervalu’s ratings on watch for a downgrade, saying a potential sale “could weaken its credit protection measures.”

J.P. Morgan Chase (JPM) downgraded Supervalu to “neutral” from “overweight,” while Citigroup (C) lowered its price target to $4 from $7.

“We believe Supervalu fundamentals may be beyond repair at this point and recommend that investors continue to avoid the stock,” Credit Suisse wrote.

Shares of Supervalu tumbled 43.70% to $2.97 in recent action, leaving them over 63% in the red so far this year.

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